Hong Kong, January 05, 2022 -- Moody's Investors Service has assigned a Aa2 rating to the proposed senior
unsecured USD notes to be issued by Korea National Oil Corporation (KNOC,
Aa2 stable).
The notes will be issued under KNOC's $10 billion global medium-term
note (MTN) program, which is rated (P)Aa2.
The outlook on KNOC is stable.
KNOC plans to use the proceeds for general corporate purposes.
RATINGS RATIONALE
"The Aa2 rating primarily reflects our assessment of a very high likelihood
of extraordinary support from, and a very high dependence on the
Government of Korea," says Wan Hee Yoo, a Moody's Vice President
and Senior Credit Officer.
Government support is the predominant rating driver for KNOC under Moody's
Joint Default Analysis for government-related issuers (GRIs).
This view is based on the Korean government's very high willingness and
strong ability to provide support to KNOC, given the sovereign's
ample financial reserves, as reflected in its Aa2 rating.
The government's very high willingness to provide support to KNOC reflects
(1) the company's 100% government ownership, (2) the company's
strategic importance to the economy, (3) the government's low tolerance
for reputational and contagion risks that could result from a default,
(4) the high level of government supervision over the company, and
(5) the company's low level of privatization risk.
This assumption of support also factors in the government's long record
of adopting measures to prevent GRI defaults and maintaining transparent
and predictable policies.
The very high likelihood of extraordinary support from the Government
of Korea (Aa2 stable) means that KNOC's credit quality will remain closely
linked to that of the government, despite its moderate standalone
credit profile, which is reflected in its Baseline Credit Assessment
(BCA) of b1.
KNOC's very high dependence on the Government of Korea is based on Moody's
assessment that KNOC's credit quality is highly correlated with that of
the government, given the close operational and financial links
between the company and the government.
KNOC's BCA of b1 primarily takes into account the company's very weak
financial profile and the inherently risky nature of its upstream exploration
and production activities, as well as its continued strong access
to debt markets.
The rating also considers the following environmental, social and
governance (ESG) factors.
KNOC's main exploration and production business is exposed to increasing
environmental regulations, which have the potential to raise operating
and investment costs. In addition, while KNOC has generally
maintained a decent safety track record, its operations are also
exposed to the risk of industrial accidents and disasters. These
risks are incorporated in KNOC's BCA.
Although KNOC has a track record of making aggressive overseas investments,
with some projects leading to sizable losses, this concern is mitigated
by the Korean government's tight supervision and the company's aim to
improve its financial profile through asset sales and contained investments.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook is in line with the stable outlook on Korea's sovereign
rating, and reflects Moody's expectation that KNOC's strategic importance
to and strong support from the government, if and when needed,
will remain intact.
An upgrade of Korea's sovereign rating could trigger an upgrade of KNOC's
ratings.
A downgrade of Korea's sovereign rating will result in a downgrade of
KNOC's ratings. In addition, Moody's would review KNOC's
ratings in the event of any significant adverse changes in the company's
relationship with the government and its policy roles.
The methodologies used in these ratings were Independent Exploration and
Production published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1284973,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Established in 1979, Korea National Oil Corporation is a 100%
government-owned exploration and production company, with
an average daily oil and gas production of around 145.5 thousand
barrels of oil equivalent (boe) in the first half of 2021 and proved reserves
of around 486.5 million boe as of 30 June 2021. The company
is mainly engaged in the exploration and development of oil and gas fields
and oil stockpiling for strategic purposes.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
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Moody's general principles for assessing environmental, social
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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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The first name below is the lead rating analyst for this Credit Rating
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this Credit Rating.
Wan Hee Yoo
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
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Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
